Two distributors of the Tennessee Valley Authority in Murfreesboro are preparing to combine to create one of the biggest electric power cooperatives in America, if TVA approves the merger.
Directors of the Murfreesboro Electric Department and Middle Tennessee Electric Membership Corp. (MTEMC), both based in Murfreesboro, have endorsed the merger to gain more synergies of scale and cost savings for the nearly 300,000 customers who would be served in a combined utility.
Under the agreement, Middle Tennessee Electric will pay $302 million, with interest, over 15 years to acquire the assets and operations of Murfreesboro Electric Department. Both utility boards and the Murfreesboro City Council approved the merger in January. But as the regulator of local distributors TVA must also approve the deal.
If approved, it would be the largest municipal electric system acquisition ever in the United States.
“We are both excited and gratified to take this step in combining these two great operations — excited for the efficiencies and opportunities it creates and gratified that the leadership in the City Council and City Hall have seen fit to trust Middle Tennessee Electric to continue the tradition of providing affordable electricity and excellent service to the citizens of Murfreesboro,” Middle Tennessee Electric Chairman Mike Woods said when the merger was approved earlier this year.
But a similar purchase plan proposed was scrapped nearly four years ago by MTEMC when the proposed valuation of the city utility appeared too high for MTEMC. Steve Sax, the former general manager for the Murfreesboro Electric Department, voiced skepticism at the time about any merger.
“MED never expected to be the subject of a buyout attempt,” Sax said in a white paper written about the earlier merger talks. “”MED’s management and board were never consulted leading up to the signing of the memorandum.”
The Murfreesboro Electric Department Power Board ultimately dismissed Sax after he gave out merit raises without consent and a new purchase agreement was negotiated between the city and the power coop last year and formally approved in January.
“For the sake of our customers and our employees, I couldn’t be happier that Murfreesboro Electric is coming together with Middle Tennessee Electric,” said P.D. Mynatt, general manager of the Murfreesboro Electric Department who succeeded Sax. “MTE is a terrific operation; our culture and dedication to customer satisfaction are completely in sync. It will be seamless.”
Murfreesboro City Manager Craig Tindall said “this situation presented a unique opportunity for both parties” since both utilities have been headquartered in Murfreesboro for more than 80 years.
“This will greatly benefit electric customers now and in the future. Moreover, electric ratepayers in Middle Tennessee will enjoy as co-op members a direct voice in their electric utility operations,” Tindall said. “But it is equally important to recognize that the citizens and businesses in the city will benefit from proceeds generated by the transaction that will help fund infrastructure needs and long-term economic development projects.”
TVA, which sells electricity to local power companies, also serves as a regulator of its customers and is reviewing the proposed utility merger for a likely decision this spring.
“Our considerations include whether it meets all of the regulatory requirements and also whether it is the best interests of Middle Tennessee Electric and Murfreesboro ratepayers,” TVA Jeff Lyash said last month after receiving the proposal from the two utilities. “In doing so, we try as has always been TVA’s objective to defer to the notion of local control. The fact that the boards of both organizations have approved this is also material to us so you should be able to expect nominally about a 90-day review before we decide if and under what conditions we would decide to approve that contract.”
The Middle Tennessee Electric Membership Coop expects to be able to pay for the money it is paying the city of Murfreesboro through cost efficiencies and the value of the assets and staff it will gain from the combination. Chris Jones, president and CEO of Middle Tennessee Electric, said “the combined utility will be more efficient, costly system duplication will end, and there will be more resources available in outage situations.”
But other municipal power utilities in the state are urging TVA to be cautious in reviewing such mergers to ensure that city leaders across the state don’t try to capitalize on selling off the city-owned utilities most have had since the 1930s following the creation of the Tennessee Valley Authority in 1933.
“(TVA) will need to make sure all state laws are followed and the terms of the TVA wholesale power contract are upheld in order to protect the ratepayers who have paid for the electric system over the past 80 plus years,” said Brian Solsbee, executive director of the Tennessee Municipal Electric Power Association, which represents the 60 municipal and county electric utilities in Tennessee which collectively serve 2.4 million homes and businesses. “No matter which local power companies are involved in a transaction, a community should be able to make decisions locally in a way that protects ratepayers and their investment in their utility to keep electric rates as low as feasibly possible and not force them to pay for their system a second time.”
Founded in 1936, Middle Tennessee Electric Membership Corporation is the largest electric co-op in Tennessee, serving more about 230,000 customers in 11 middle Tennessee counties. MTE employs 420 people in six local offices and its Murfreesboro corporate headquarters.
The Murfreesboro Electric Department serves 67,000 accounts and has about 90 employees, all located in downtown Murfreesboro.
